The role of computerized
`reservation systems in the
`
`= industry
`
`Fra.nkM. Go
`
`
`
`If we are to gain the perspective necessary to explain the
`role of computerized reservation systems (CR5) in the
`hospitality industry, we should adopt a broader view of the
`hospitality function within the travel and tourism industry.
`In commercial terms the hospitality industry includes
`accommodation and food service businesses (profit and
`non-profit) that cater to people who are away from home.
`This paper refers particularly to the accommodation indus-
`try as a subsector of tourism which includes hotels, motels,
`resorts, and bed and breakfast enterprises.
`Due to their commercial significance this paper places
`special emphasis on hotels, motels. and resorts that are
`chain owned and operated. Since the 18th century the
`development of hotels has been inextricably intertwined
`with revolutionary developments that have occurred in
`transport and it is clear that its future is intimately tied up
`with the future of the travel and tourism industry.
`The travel and tourism industry is, however, an econo-
`mic branch with a relatively low degree of integration. In
`spite of these observations several authors have made
`reference to the travel
`industry or a tourism system
`consisting of four main parts: (1) a market made up of
`people who travel; (2) an attraction situated in a destina-
`tion to which people travel representing part of the supply
`side of the tourism industry;
`(3) a series of linkages
`comprised of services such as (tele-) communications,
`transport, banking/finance that afford information and
`people flows between the market and destination area;
`and (4) a destination area infrastructure comprised of a set
`of services that cater to the requirements of travellers,
`including hotels, food services, retail stores and many
`other products.‘
`Viewing travel and tourism as a system suggests that the
`systematic marketing of the tourism product is possible
`and desirable through the value chain. The importance of
`
`
`Frank M. Go is Director, Tourism and Hospitality Management
`Concentration, Faculty of Management, The University of Cal-
`gary, Calgary, Alberta, Canada. T2N 1N4.
`
`the value chain has been captured as follows: poor per-
`formance by one business affects the tourism industry as a
`whole. By the same token when tourism operators pro-
`duce quality goods and services. their quality work brings
`both them and the industry success.
`The value system in travel and tourism includes related
`services such as telecommunications, credit card, and
`banking services and indirect supplier value chains like
`computer
`reservation systems, brewers. construction
`firms, real estate and educational and training institutions.
`The suppliers of related services and manufactured goods
`» provide inputs to the hotel firm's value chain. Within the
`functioning travel and tourism system the hotel firm exists
`to provide overnight accommodation to guests who have
`moved to a particular destination outside their normal
`places of work and residence for pleasure or business
`purposes (or a combination of the two). A hotel firm’s
`product often passes through the value chain of distribu-
`tion channels on its way to the ultimate consumer. In fact,
`the hotel suppliers’ need to be identified in the market-
`place may be defined as follows:
`
`hundreds of thousands of lodging establishments are seeking to
`gain identity with untold millions of potential customers covering
`the whole spectrum of incomes, interests, knowledge. sophistica-
`tion, and needs; but few single establishments can afford the
`marketing costs.”
`
`As a consequence single or independent hotels tend to be
`extremely vulnerable, while hotels operating within a
`chain or network tend to have access to the necessary
`capital. marketing expertise and technology necessary to
`survive.
`
`The discipline of marketing appears to be entrenched as
`a force majeure in the competitive strategy of companies,
`as well as within the literature. Since competition in the
`hotel industry takes place on the local levet the conduct of
`the independent hotel and chain affiliated hotel will tend
`to influence to a significant extent the strategic decision
`process of both.
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`Starbucks, Ex. 1068
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`The role of computerized reservation system: in the hospitality irtduriry
`
`Independent hotels
`
`Ctialn hotels
`
`Figure 1. Matrix showing globalization of hotel industry.
`
`Independent and for the most part local hotel firms will
`increasingly attempt
`to become part of a network to
`benefit from the scale effects brought about by configura-
`rion to ensure survival. Chain hotels, on the other hand,
`are likely to focus more and more on system coordination
`to improve communications and cost control. The matrix
`depicted in Figure 1 draws together the basic ideas of the
`evolving globalization and industry structure in the hotel
`sector. The vertical axis distinguishes between indepen-
`dently owned hotels and chain operated hotels. The
`horizontal axis contrasts the local and global market. Most
`independent hotels are local
`in nature and therefore
`operate in quadrant 1, whereas many of the larger chain
`operated hotels are active on the global level in quadrant
`4. The matrix illustrates the need among independent
`hotels to direct their efforts to become affiliated with a
`
`global external network (quadrant 2). or to expand into a
`corporate chain (quadrant 3).
`Despite the ever present pull on corporations to localize
`production and produce local products, a growing number
`of chain affiliated hotel firms which operate on a local
`basis (quadrant 3) are being drawn into the global market-
`ing arena (quadrant 4) for two main reasons. First, the
`weakening of growth opportunities in their home markets
`is pushing hotel firms to expand abroad. And second.
`hotel firms based in Europe. the USA and Japan are being
`pulled into foreign markets by growing opportunities for
`their product abroad.
`But such a characterization masks other factors that
`
`drive the industry toward globalization including a com-
`bination of four sets of conditions: market drivers. cost
`drivers. government drivers and competition drivers.3
`These will be briefly considered before fuller discussion of
`
`Cost drivers
`
`the
`type(s) firms decide to construct,
`Beside the hotel
`location determines to'a great extent where they build, a
`hotel's customer mix,
`the direction of the marketing
`strategy and profitability. Local factor costs, in particular,
`have a significant effect on hotel demand in that costs of
`land and labour comprise a large part of hotel capital and
`operating expenses.
`International hotels are therefore
`significantly and most directly influenced in their pricing
`policy by local factor costs.‘ If land prices are high, such as
`in major cities like London. then well sited hotels will all
`have broadly the same underlying fixed cost structure and
`will have to set their rates accordingly. Similarly, a selec-
`tion of hotels offering the same level of service will require
`roughly the same level of staff per guest to provide that
`service, and therefore their cost structure will be influ-
`
`enced by local labour markets and even by such factors as
`the host country's immigration policy where local hotel
`labour is scarce.
`
`there is in effect an internationally
`In these cases.
`functioning competitive oligopoly which operates only on
`the local market concerned. Each hotel of similar class has
`
`to watch closely the price/service mix offered by its
`immediate competitors. To be significantly out of line with
`the majority is a sure recipe for falling occupancy rates.
`
`Market drivers
`
`A major market force that affects hotel industry structure
`and profitability is the bargaining power of buyers. In the
`hotel
`industry. buyers include tour wholesalers,
`travel
`agent retailers and consumers. We will use the words
`buyers and consumers interchangeably in this analysis.
`Buyers impact on the hotel
`industry by forcing down
`prices, demanding higher quality and greater variety of
`services, and playing competitors against one another- all
`at the expense of industry profitability. Buyers. sure that
`they can always find alternative hotel space. have used this
`knowledge to play one hotel firm against another (for
`example when meeting planners of a company or associa-
`tion negotiate to hold their conference at a particular
`hotel).
`Similarly. wholesalers, travel agencies and tour brokers
`account for about one—third of the roomnights consumed
`annually in the USA? The needs of travel organizations
`who resell the hotel rooms they buy is different from the
`user. Although consumers are expected to continue to
`play the starring role. there are certain developments in
`the hotel-client relationship that are worth noting:
`(1)
`hotels have become more removed from their clientele;
`(2) client decisions are largely controlled by more than just
`the individual user; and (3) the gap between supplier and
`consumer continually appears to wide-n.°
`
`Government drivers
`
`Most governments around the world play a significant role
`in restricting trade in travel and tourism services by
`erecting both financial and legal barriers which contribute
`to reduced tourist flows. The restrictions tend to be most
`severe in the Americas and have contributed to the decline
`in tourism market shares vis-rl-vis East Asia and the Pacific
`where travel within the region is facilitated and has
`contributed to the fastest growth in tourism receipts.
`Government drivers have been indirectly significant in
`that the deregulation of the airline industry in the USA in
`1978 brought along a broad choice of airfares and much
`greater complexity in selecting the most competitive
`offers. This development required computerized systems
`capable of handling a vast amount of data and resulted in
`the changing role of the CRS from airline information and
`booking system to marketing and distribution system. As
`the world of travel, information and reservations started to
`change in the late 1970s — first in the USA and then
`gradually throughout the world as a result of deregulation
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`The role of computerized reservation system in the hospitality r’rrdn.nr_v
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`— technology became the key to making the travel trade
`and hospitality industry functions more efficient and effec-
`tive, in the new business environment which resulted.
`
`Competitive drivers
`
`With growth opportunities being presented on a world-
`wide basis and major players in place in the USA, Western
`Europe, and Asia,
`the international hotel
`industry has
`become a twoway street, with US companies expanding
`overseas and offshore companies expanding in the USA.
`Although the international hotel industry is still domin-
`ated by US companies. foreign companies are rapidly
`progressing either through acquisition, joint ventures or
`physical expansion. As changes occur in the market. hotel
`firms have to develop new strategies to maintain market
`share. Technological developments in information proces-
`sing and the availability (or lack) of skilled personnel are
`likely to have a major impact on the policy. planning and
`strategic direction of hotel corporations.
`Competitiveness can be assessed along two dimensions.
`First. a global dimension which measures competitiveness
`in terms of numbers of guests attracted. market share.
`revenues. and expansion. The second dimension focuses
`on the functions performed in an industry subsector and
`attempts to explain why one sector is more successful than
`another. Canada's hospitality industry seems to be behind
`its competitors in terms of the provision of information,
`marketing analysis capabilities, and interconnection
`among systems and databases. These functions tend to be
`most critical in terms of industry--customer interface and
`affect perceptions and competitiveness most directly.7 The
`traditional competitive strategy paradigm which focuses
`on product—marketing positioning is greatly and in-
`creasingly dependent in hotel firms on human resources
`management, which is an integral part of the value chain.“
`Though market drivers. cost drivers and government
`drivers provide stimuli to globalization in the hotel indus-
`try, competitive drivers, especially CR5,
`if effectively
`utilized can play a crucial role to contributing to the hotel
`firm‘s value chain. As the CRS expands, an increasingly
`complex hierarchical system of transport and travel net-
`works is evolving which provide important opportunities
`for gaining competitive advantage by those hotel firms
`with the necessary competencies and skills to capitaiize on
`the new technology.
`The emerging systems based on information technolo-
`gies will afford hotel firms the opportunity to compete
`with rivals and complement other travel industry suppliers‘
`services. The idea that the hotel firm is part of a network
`of economic transactions implies that in order to expand
`geographically and operate profitably the international
`hotel firm must perform its role effectively in the function-
`ing tourism network. This requires cooperation between
`the hotel firm and travel industry partners, such as CRS
`genus c'ti<’f§.'=5ii.1irline and travel agency firms. The hotel firm
`should also formulate strategies which take into account
`the host country's tourism policy and regional develop-
`ment priorities.
`In this regard, a potential obstacle to
`
`effective hotel marketing is the tendency of hotel execu-
`tives to see problems and solutions in the narrow context
`of the hotel industry. The latter issue has become more
`prevalent as a set of global industries. including financial
`services. (tele-) communications and transport. especially
`through their CR5 subsidiaries. are affecting the operation
`and control of hotel firms throughout the world.
`
`Computer reservation systems (CR8)
`
`Computer reservation systems were first developed when
`airlines began to computerize their internal functions and
`booking procedures simply as a time saving mechanism.
`The simple. relatively inexpensive internal system first
`developed in 1962 by American Airlines helped them
`obtain a dominant position in the market. CRS were a
`natural progression of this early internal technology and
`American Airlines was the first to realize the benefits of
`expanding its computer systems to include on line ter-
`minals with direct reservation capabilities located in travel
`agencies.'’ American Airlines first began marketing their
`CRS extensively in this way immediately following the
`deregulation of the airline industry in 1982. Their CRS
`named Sabre has assisted American Airlines in capturing a
`large market share and has been an integral key to the
`competitive advantage the company has secured. The
`deregulation of the airline industry fuelled the rapid
`development and expansion of CR8 in the USA, and this
`has led to the many dynamic sophisticated systems in
`existence today.
`These early systems were the predecessors of the multi-
`million dollar megasystems which are used extensively
`throughout the world today. It was not
`too long after
`deregulation when the remaining airlines realized that
`they could no ionger compete with those utilizing CRS
`technology. The major airlines either began development
`of their own systems or they merged with other firms that
`already possessed the technology. The reservation systems
`are usually on line, so all information provided about seat
`availability and cost tends to be accurate and current. The
`travel agents know exactly how many and what class of
`seat
`is available. which in turn makes the service they
`provide appear more valuable to a consumer. The ter-
`minals that are being used by travel agents are micro-
`computers that also perform office functions such as
`accounting, database storage, financial management and
`other operations that have helped to improve the efficien-
`cy of many travel agencies. Airlines began offering termin-
`als as an incentive for travel agents to use their respective
`CR5.
`
`Meanwhile, CRS have also diversified into many other
`reservation functions such
`
`
`
`
`"‘ - - "ii. i
`
`sectgttga‘. Product diversification is making the airline sys-
`tems appear more attractive to the travel agents as such
`systems would not only increase their competitive advant-
`age but also increase their profitability. This profitability
`would be derived from the increased commissions they
`would be receiving from hotels andteam-gmal":?ébmpanies
`
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`Starbucks, Ex. 1068
`Starbucks v. Ameranth, CBM2015-00091
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`The role of computerized reservation systems in the hospitality irtdustry
`which would also be using the system. So highly do travel
`agents regard CRS that 92% of all domestic airline tickets.
`77% of international airline tickets,"'69%-
`,,
`51%
`
`hotels. 8% tour/vacation packages and 4% of all cruises
`are booked in such a manner. ‘” The figures illustrated that
`CRS have secured an established position in the travel
`market. CRS technology has also grown exponentially in
`order to offer clients more and better services at the global
`level and local level.
`
`example, if there is to be a major trade fair in a city. the
`CRS can be instructed not to accept bookings for less than
`the duration of the fair if it is known in advance that the
`hotel stock in the city will be more or less full during that
`week. Equally, it may be known that certain nights of the
`week are typically full in a given hotel while others are less
`well patronized. The CRS can be instructed to deal with
`this imbalance by price variations.
`One of the areas where {IRS will find it more difficult to
`replace skilled staff will be in the role of the hotel booking
`agent, found at most major airports, for example. The late
`release of rooms, or the necessity to manage room availa-
`bility to cater for flight delays and the unexpected, is a
`difficult area for CRS. The hotel booking agent who puts a
`lot of business in one hotel or group of hotels will normally
`cultivate close personal relationships with the hotel front
`desk. In return for loyalty, the hotel will tend to help out
`the agent when rooms are needed at peak times. or late
`bookings have to be made.
`industry will vary-
`The impact of CR3 on the hotel
`Broadly, the bigger the company the greater the potential
`benefit. The major international groups will be better able
`to afford the inyestment necessary to bring their own
`systems up to a s andard which permits them to interface
`with the CRS than smaller, less well off groups. In return,
`the majors will be able to develop a better, directly
`manageable source of detailed knowledge on their clients,
`will be able to manage their yields much more tightly. and
`should achieve the lion‘s share of advance reservations
`from foreign clients before their local, often independent
`rivals.
`
`By the same token, the weakest and most vulnerable
`part of the hotel industry in the area of CR5 development
`will be the independent property. The hotels most vulner-
`able would seem to be the smaller, independent properties
`whose business comes to a significant degree through sales
`and travel agents overseas or a long way from their local
`markets. In ‘most cases the investment required to link into
`a large number of the major systems may be beyond the
`small unit. If they cannot place themselves in front of their
`national or international clients at the point of sale, they
`will obviously be at risk of losing a substantial slice of their
`business.
`
`The key for all hotels, large or small, chain or indepen-
`dent, will be to have a detailed knowledge of their current
`markets and a reasonable appreciation of unexploited
`potential. This will give them the basis on which to define
`what sort of CR5 linkages they need, and this in turn will
`give a clear indication of the investment costs involved.
`While not all hotels will then be able to implement all
`these aspects, at
`least some rational decisions will be
`possible. Fundamental decisions will have to be made here
`about distant sales representation and those that cannot
`afford to be in the CRS of importance in these markets will
`almost certainly lose market share.
`
`Conclusions
`
`Historically. the hotel industry has been slow to adapt to
`
`Implications of CR5 on the hotel industry
`
`For the hotel industry the vital feature is that, while CRS
`are airline led and dominated, the customer is increasingly
`able to reserve hotel space as well as many other features
`of his or her travel arrangements in addition to the airline
`seats which are the starting point for most travel transac-
`tions. Hotels within large national markets and across
`frontiers run the risk of losing business if they do not
`feature on these megasystems.
`The major CRS may well consolidate into perhaps two
`or three dominant international systems by the mid-19905,
`and indeed this consolidation process has already begun.
`How these groupings might
`in reality develop is not a
`subject for this paper. but the implications for the interna-
`tional hotel industry clearly are. and are likely to be very
`far reaching.
`Hotels have little practical choice but to ensure that they
`feature on these systems. though how the choice of system
`is made and how many systems a given hotel company
`needs to participate in remains unclear. These issues will
`only be resolved once a clearer picture emerges as to
`which systems will succeed and how they will be positioned
`in the international marketplace.
`It does seem clear, however, that the costs to hotels will
`be very significant, and could well result in an all round
`rise in hotel room rates. The cost of making reservations
`through CRS may, in some cases, increase by as much as
`25 to 30% of the published nightly room rates. Indeed,
`hotels would be well advised to calculate exactly what the
`costs of such reservations will be to them, before they sign
`any agreement. "
`On the other hand. the hotel industry stands to gain
`some significant benefits from the mega CRS. First, much
`improved yield management techniques will be available
`via the systems. Yield management broadly means max-
`imizing occupancy rates. and matching variations in de-
`mand on a seasonal and weekly basis to different pricing
`structures in order to maximize revenue. Use of new
`reservation technologies can help to set targets for the
`number of rooms that can be sold at a given set of prices
`on different days of the elude and/or seasons of the year.
`Such parameters can be built into the CR8 and can be used
`to manage capacity by influencing the decision to purchase
`at the point of sale.
`Sell through techniques are part of this process. These
`are means whereby the day to day judgement of staff can
`be supplanted by set criteria within :1 CR8 to influence the
`nature of bookings that a given hotel will accept. For
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`The role of computerized reservation systems in the /iospiraliry industry
`
`change. Meanwhile, the market is changing. segmentation
`is becoming more important. and cost structures are
`changing so as to create supply side segments of the
`market in addition to segmented demand. Market seg-
`mentation has amplified the key distribution problem in a
`fragmented service industry like the hotel industry. depen-
`dent upon a dispersed market.
`National and international hotel companies and chains
`have had computerized reservations systems for many
`years. These have been used to facilitate guests making
`bookings in other properties owned or operated by the
`same group with obvious advantages to the hotels in
`retaining customer loyalty.
`The latter half of the 19805, however. saw the accelerat-
`ing deveiopment of global CR5 owned by the world's
`major airlines. These systems are in a different technolo-
`gical league altogether. and operate at the forefront of
`computer and software system technology. The leading
`players were the US airline companies, whose success with
`CRS was such that other non-US companies — notably in
`Europe «~ were obliged to develop their own systems in
`order to avoid dependence on US companies for the
`management of their booking systms.
`The role of today's CRS is that of a travel marketing and
`distribution system rather than an airline booking system.
`The marketing practices, and in particular the distribution
`strategies of hotel firms throughout the world, are in-
`creasingly influenced by CRS. Through strategic alliances
`CR5 concentrate buying power in the hotel and travel
`industry in the hands of fewer players. CRS are moving
`hotels from product based to relationship based processes
`of value creation. This implies that the hotel market will
`be increasingly defined as a network of dealings between
`the hotel and its users rather than either a physical area
`served by the hotel or the people who buy the hotel
`services.
`
`The automation issue, and CR3 in particular, are caus-
`ing increasing concern for hotels who want to be part of
`the new technology developments. At
`the same time,
`hotel firms view themselves as pawns in what is essentially
`an airline industry game. As global distribution systems
`CRS mean a loss of independence for hotel firms as it
`becomes increasingly clear that CRS are driving the
`hospitality business. Consequently. hotel corporations
`face several strategic imperatives to improve their in-
`formation knowledge and techniques:
`
`0 Understanding the role of the CRS in the hotel industry
`within the value chain context as well as the policy,
`problems and plans of other operators in the value
`chain will assist hotei managers in formulating and
`implementing marketing strategies in a network trans»
`actions dominated environment.
`
`! Within the CRS framework, competitive advantage is
`likely to become increasingly a function of how well a
`hotel firm can manage its relationship within the func-
`
`including customers. suppliers and
`tioning network,
`competitors. Better policies and programmes must be
`formulated and implemented to create. track and man-
`age hotei relationships.
`0 Where possible hotel corporations should commit the
`necessary financial investment and increase their know-
`ledge of reservation networks to reap bigger gains from
`the new technology.
`0 Where appropriate hotel corporations should explore
`distribution through technologies other than CR3.
`0 Finally. small hotel firms are placed at a disadvantage
`by CRS. In an effort to survive small hotei firms are
`more likely than before to join a consortium which can
`provide access to a sophisticated reservation system.
`
`in
`to play an important part
`CR5 have the potential
`making hotel marketing a more sophisticated process; but
`this will nevertheless remain an area where hotels must
`play an active rather than a passive role. The impact of
`computer technology, including global computer reserva-
`tions systems, will prove central to the international travel
`industry and hotel operations in the 19905 and beyond.
`
`Notes and references
`
`‘Clare A. Gunn, Vatuiionscope Designirig Tourtirr Regions‘.
`Bureau of Business Research, The University of Texas. Austin,
`TX. I972; Frank M. Go. ‘Development of new service products
`for
`the leisure travel market — a systems view’. Revue de
`Tow-Esme, No 2. 198! , pp 9-19; Alastair Mill and Robert Christie
`Mill. The Tourism System: An Introductory Teri. Prentice Hall,
`Englewood Cliff. NJ, 1985: and [Jo] Blank. The Corrrrntmiry
`Tourism lndtcstry Imperan‘-.-e: The Necess'i:_v. The Opportunities,
`Its Poremiui, Venture Publishing, State College, PA. 1989.
`3William K. Kaven, ‘Channels of distribution in the hotel indus-
`try‘, in John M. Rathmcll. ed. Marketing in the Service Sector,
`Winthrop Publishers. Cambridge, MA, 1974, pp ll=l—l21.
`“George S. Yip and George A. Coundourintis.
`‘The world
`chocolate confectionery industry‘, Pia.-2m‘r1g Review, Vol 19. No 1.
`1991, pp 4-14.
`"LG. Lambooy. Regiomde Ecortomische Dyrtamiek ecu inleidirig
`in de ecoriomische geografie. Coutinho, Muiderberg, 1988, p 79.
`‘Charles Brewton. ‘A model for analyzing the iodging industry‘.
`The Cornell HRA Quarterly. Vol 28. No 2. 1987. pp 10-12.
`‘Michael A. Leven, ‘The growing distance between buyer and
`user: channels of distribution‘,
`in A.R. Lewis Pizam and P.
`Manning. eds, The Promise of Hospitality Management. AV],
`Westport. C3", 1932.
`7Government of Canada. Appl‘r'cart'ort.r of Technology in the
`Tourism Industry (Main Report), Tourism Canada, Ottawa,
`1988.
`“Michael E. Porter. Competitive Strategy, Free Press. New York.
`1980.
`
`“For an account of Sabre as a competitively significant informa-
`tion systcrn see Duncan G. Copeland, ‘So you want to build the
`flexl SABRE system'.”. 3u5ine.s's' Quarterly. Vol 55, No 3, 199i,
`
`e 1988 Louis Harris Survey.
`‘
`"Frank M. Go and Peter Welch, Comperhive Strategies for the
`international Hotel Indus-try, Economist Intelligence Unit. Lon-
`don. 1991.
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`Starbucks, Ex. 1068
`Starbucks v. Ameranth, CBM2015-00091